How often should I rebalance?

Once a year is a common, effective default. Rebalancing more often adds costs and effort for little extra benefit; a threshold band (e.g. 5%) is a sensible alternative trigger.

Does rebalancing improve returns?

Not reliably — its main benefit is controlling risk by keeping your allocation on target. Any return effect is modest and depends on the period.

Calendar vs threshold rebalancing — which is better?

Both work. Calendar is simpler; threshold is more responsive to big moves. A hybrid — check on a schedule, act only past a drift band — captures most of the benefit with little effort.

Portfolio Rebalancing, Explained: Why and How to Reset Your Mix

5 min read · Updated 2026-06-15

Set a portfolio to 60% stocks / 40% bonds, leave it alone, and a few good years later it might be 75/25 — quietly riskier than you intended. Rebalancing is how you reset it back to your target.

It sounds like busywork, but it's really risk control with a side of discipline. Here's why it matters, the simple ways to do it, and how to test whether it actually helps your portfolio.

Backtest a rebalanced portfolio →

Why your mix drifts

Because assets grow at different rates, your winners take up an ever-larger share over time. That drift means your portfolio slowly becomes more concentrated and more aggressive than you chose — exactly the kind of risk creep you don't notice until a downturn punishes it.

What rebalancing does for you

Two things: it keeps your risk where you intended (the main point), and it quietly enforces buy-low-sell-high — you trim what's run up and add to what's lagged, which is the opposite of what emotion tells you to do. The return benefit is modest and inconsistent; the risk-control benefit is the real prize.

Two simple methods

You don't need anything fancy:

•Calendar rebalancing — reset to target on a schedule, e.g. once a year. Simple and effective.
•Threshold rebalancing — reset only when an allocation drifts past a band (e.g. more than 5 percentage points off target). More responsive, a bit more work.
•Many people combine them: check annually, act only if something has drifted past its band.

Mind the taxes and costs

Selling to rebalance can trigger taxes in a taxable account. Two easy fixes: rebalance inside tax-sheltered accounts (TFSA/RRSP, IRA/401k) where trades aren't taxable, and use new contributions to top up whatever's lagging so you buy your way back to target without selling.

Test its impact

Backtest your portfolio and compare how it behaves with periodic rebalancing — the difference shows up most in the risk and drawdown numbers, which is exactly where rebalancing earns its keep.

Try it yourself

Backtest PortfolioSee how rebalancing affects risk and drawdown.Open tool →Asset Class BacktestTest a rebalanced allocation by asset class.Open tool →Portfolio OptimizationFind the target mix you'll rebalance back to.Open tool →

FAQ

How often should I rebalance?: Once a year is a common, effective default. Rebalancing more often adds costs and effort for little extra benefit; a threshold band (e.g. 5%) is a sensible alternative trigger.
Does rebalancing improve returns?: Not reliably — its main benefit is controlling risk by keeping your allocation on target. Any return effect is modest and depends on the period.
Calendar vs threshold rebalancing — which is better?: Both work. Calendar is simpler; threshold is more responsive to big moves. A hybrid — check on a schedule, act only past a drift band — captures most of the benefit with little effort.

Key terms in this guide

Plain-English definitions in the Learning Hub.

Maximum drawdown →Volatility (annualized standard deviation) →Risk contribution →

Stop guessing — run the numbers on your own portfolio, free.